Option traders tripled their money with downside positions in SM Energy a month ago, and now they’re doing the same with bullish plays as shares rebound.
On Sept. 13, Investitute’s tracking systems detected the purchase of 3,100 October $17.50 calls for $0.55 to $0.65 with shares at $15.77. These were clearly new positions, as open interest in the strike was only 596 contracts before the activity appeared.
Today those calls traded up to $1.84, triple their original prices. The stock rose 18.2 percent in the same time frame, showing how quickly options can far outperform their underlying shares.
Long calls lock in the price where investors can buy a stock, letting them position for a rally at limited cost with the potential for significant leverage. They carry less risk than owning shares because the most that can be lost is the price of the options no matter how far the stock might fall.
SM jumped 5.93 percent to $18.77 today. The oil and gas producer hit a 52-week low when Hurricane Harvey ravaged the Gulf Coast at the end of August, but shares have surged more than 50 percent since then as operations have recovered and the price of oil has risen.